Reference no: EM13832772
The Southwick Company has the following balance sheet ($000):
Financial Ratios
Current ratio .................... 1.92
Quick ratio ..................... 1.08
Debt-to-equity ratio .............. 0.79
Evaluate the impact of each of the following (independent) financial decisions on Southwick's current, quick, and debt-to-equity ratios:
a. The firm reduces its inventories by $500,000 through more efficient inventory management procedures and invests the proceeds in marketable securities.
b. The firm decides to purchase 20 new delivery trucks for a total of $500,000 and pays for them by selling marketable securities.
c. The firm borrows $500,000 from its bank through a short-term loan (seasonal financing) and invests the proceeds in inventory.
d. Southwick borrows $2,000,000 from its bank through a 5-year loan (interest due annually, principal due at maturity) and uses the proceeds to expand its plant.
e. The firm sells $2,000,000 (net) in common stock and uses the proceeds to expand itsplant.
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